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Pro: Congress should scrap consumer protection agency and start over

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Thomas J. Donohue
September 19, 2009
EDITOR’S NOTE: The writer is addressing the question, Should Congress scrap the proposed Consumer Financial Protection Agency?

WASHINGTON—The one-year anniversary of the fall of Lehman Brothers is a painful reminder of the suffering endured by millions of Americans during this severe recession. As we struggle to get the economy moving again, we must heed the law of unintended consequences and ensure that our efforts to fix the financial system help protect investors and don’t actually make things worse.


Unfortunately, that’s exactly what will happen if Congress approves legislation creating the Consumer Financial Protection Agency, a new regulatory body that would oversee virtually every institution that extends credit to consumers.


There are four major problems with this bill: It would hand unprecedented power to a massive new government bureaucracy; it would restrict access to credit and consumer choice; it would add layer upon layer of new regulations to an already confusing regulatory regime; and it would undermine privacy.


First, CFPA’s authority would be truly expansive, extending far beyond traditional financial services products to the entire economy. The agency would oversee virtually every business, broadly defined, that extends credit. This includes any business that allows customers to pay in arrears—either through layaway, on a tab, or simply in more than one installment.


The bill would give the CFPA authority to write and enforce rules, conduct examinations, require and approve disclosures regarding consumer financial products, impose fees or assessments on all covered persons, and require reports from covered entities. It’s classic big government at its worst!


Second, the CFPA would restrict access to credit and limit consumer choice when both are more important than ever to revitalize our economy, create jobs and get families back on their feet.


The agency would require that any company offering a consumer financial product must first offer a product with terms and conditions set by the government before offering any alternatives. This would tilt the market toward government-designed products, create new regulatory hoops for institutions to jump through, and add new costs.


The result would be new bureaucracy that would end up choking off credit to families and small businesses. Small banks would be hit hard by new regulatory costs, making them less likely to extend credit in their communities. Those fortunate enough to secure credit would see their borrowing costs increase. This is a prescription for economic disaster.


Third, the CFPA would further complicate an already Byzantine set of regulations. The agency would set the floor, not the ceiling, regarding state consumer protection laws. Rather than a uniform national standard that would eliminate the potential for harmful or deceptive products to slip through the cracks, there would be the CFPA and 50 state regulators each with their own set of rules. Companies and their customers would be lost in a maze of confusing and overlapping edicts. And guess who gets to interpret and enforce the new federal law and possibly take action against your business? State attorneys general and their allies in the plaintiffs’ trial bar!


Fourth, in addition to creating a new bureaucracy, limiting consumer credit and choice, imposing costs, and generating confusion, this proposal would also undermine privacy. The CFPA would have the authority to request and hold reports from any covered entity—including reports from banks about the type of accounts and the balance in each account. This is an affront to the privacy and security of consumers’ financial information.


Consumers and lawmakers should follow this rule when deciding whether to overhaul our health care system, regulate our entire energy market, or “fix” consumer protection laws—first, do no harm.


The CFPA, if enacted, would do a great deal of economic harm to consumers and to our economy without ensuring new protections or solving legitimate shortcomings in our financial system. Congress and the administration should go back to the drawing board.


Thomas J. Donohue is president and CEO of the U.S. Chamber of Commerce. Readers may write him at USCOC, 1615 H St. NW, Washington D.C. 20062-2000; Web site: www.uschamber.com.

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